Facebook ad business faces threat amid U.S antitrust law suits
By Kasim Bakare
These are not the best of times for social networking platform, Facebook as it faces one its biggest challenges since it was established in 2004. Recently, the U.S Federal Trade Commission and 48 Attorneys General filed dual antitrust suits designed to undo the merger of Facebook and Instagram as well as Facebook’s takeover of WhatsApp.
In April 2012, when Instagram was two years old, Zuckerberg offered to pay $1 billion for the company and the board of the photo and video sharing platform wasted no time in accepting the offer. In fact the company had 13 employees and no obvious path to profitability prior to the offer by Zuckerberg. The facebook boss knew that the fast-growing photo app was a potential threat to Facebook Inc.’s social media dominance and he acted promptly.
But when it sought to get the deal approved by the Federal Trade Commission in the U.S. and the Office of Fair Trading in the U.K., Facebook argued with a straight face that there was plenty of competition from other photo apps like Camera Awesome. And the two government agencies were also convinced that because Instagram had no revenue, a merger with Facebook wouldn’t meaningfully add to its market share. The two regulators took only four months to approve the deal.
In another audacious move to stave off competition, Facebook sought to buy WhatsApp in February 2014 for a staggering $19.6 billion. It also added $3.6 billion to the original price as compensation to WhatsApp employees for staying on board at Facebook. WhatsApp is Facebook’s largest acquisition and one of the biggest Silicon Valley has ever seen. Observers believed that the Whatsapp takeover is over 20 times bigger than Facebook’s Instagram acquisition, which made quite the splash in 2012. The two parties agreed and WhatsApp was acquired by Facebook.
However, the latest lawsuits have thrown a spanner in the works of one of the world’s most profitable businesses. Experts are of the opinion that the latest radical proposition is historic considering the fact that the U.S. government has not contemplated breaking up a company since the Justice Department sued Microsoft in 1998. It is widely believed that the latest action against Facebook is the only way to curb its monopolistic tendency.
Specifically, observers contend that social media consumers don’t have legitimate choices. If they don’t like Facebook’s privacy policies, or if they want fewer ads, or are offended by Facebook’s unwillingness to face squarely the amount of disinformation on its platform, what are their options? Move to Instagram or WhatsApp? They are still in Facebook’s universe, which can still use their data to make oodles of money. Some analysts have argued that the seeming monopoly enjoyed by Facebook in this space is inimical to the fundamental principle of capitalism laid on the foundation of choice.
The major concern of Facebook will be how the latest efforts by the anti-trust plaintiffs would affect its ad business. During the pandemic, Facebook faced one its major challenges when big advertisers like Unilever took its ads from its platform because of issues around the use of Facebook to perpetrate fake news. In 2021, the social network is projected to generate 94.69 billion U.S. dollars in ad revenues, up from 56 billion U.S. dollars as at Q3 2020. Will Facebook meet this revenue projection even in the middle of legal tussle which may drag on for an unimaginable period?
Commenting on the whole situation, Boye Adefila, MD Down to Earth Marketing, opines that the desire to break or uphold Facebook’s monopoly via the anti-trust law suit initiated by the US Federal Trade Commission has gone beyond the front-end debates of marketing exigencies. In his opinion, he noted that the situation clearly underscores the endemic role of institutions in economic and political realities.
His words: “The whole situation is not just about corporate growth or any marketing strategy as it were. Rather, it is about an IDEA (much like capitalism itself or its opposite, Marxism) which has now grown bigger than those who gave birth to it, and continues to outgrow humane expectations. Facebook is a monstrous success and even the regulators are scared and rightfully so! Yet, the whole point of capitalism is liberal competition, meaning “May the best competitor win”, a world that does not exist in an ideal communist state, where, put basically, the resource of one big state is supposedly shared amongst the masses. To further underscore this point, Adefila cites an analogy,
“If your child weighs an extra pound beyond average at birth, you may chuckle with delight; if he/she grows 32 teeth in one year you would surely break into an uncomfortable laughter for this is insane growth! Now, if the child becomes a six-footer at age five, you get extremely terrified and this is what is happening between the US economic defenders and Facebook. Will the child, one day, beat up its parents? Will he/she endanger other kids at school? How will the teachers “look up to him”…literally speaking?
He continues: “In other words, Facebook is a monstrous success and even the regulators are scared and rightfully so! Yet, the whole point of capitalism is liberal competition, meaning “May the best competitor win”, a world that does not exist in an ideal communist state, where, put basically, the resource of one big state is supposedly shared amongst the masses.
“So the question is, now that we have the monopoly of one big state or institution (Facebook) in the marketing world, would we also have the idealic equitable sharing with the masses as obtainable in the ideal communist state? The answer is No!”
On the propriety of the lawsuits on Facebook’s monopoly in the social media business, Adefila contends that the situation creates a Catch-22 dilemma for the Trump-led U.S administration. He believes the ‘clampdown’ on Facebook opposes the basic principle of free enterprise on one hand and controlling greed of capitalism on the other end.
Hear him: “Facebook is, at best, a plc (public liability company), which means it is owned by an insignificant percentage of the so-called public at large, its privileged shareholders of whom Mark Zuckerberg is, I think, the largest shareholder. So, breaking the company into “smaller bytes” is a wise move, but must be done without discouraging excessive greed which is the infamous hallmark of the height of capitalism.
He opines that the move is a dilemma for the US government and its regulators seeking to cut Facebook to size. “It is a huge irony, because on one hand, the society says to Mark “BE THE BEST YOU CAN BE” and Mark Zuckerberg has done just that and wants to do more besides, but now everyone is scared that Facebook is no longer just a company, it is not even just an institution, it is a Double, World Super Power, like USA and Russia combined in one coat of arms.”
On the implication of the initiated suits on Facebook’s ad business, the consummate adman believes the Facebook boss will need to be cautious and moderate in taking actions so as to avoid serious consequences from the lawsuits.
“Mark and team can still wield indirect control over the macro marketing space by individually owning collective shares in these companies. The mistake they made is not learning from the class-act against Bill Gate’s Microsoft a decade or more ago, when Window’s monopoly and the Microsoft Office Suite became a source of concern to Federal legislators in the USA.
“As a student of history, Mark ought not to have been satisfied with the approvals gotten by same government for the acquisitions they now wish to break apart. Granted that the acquisitions happened during the Obama Administration, but Mark and his team ought to have had a marathon perspective of this journey.”
On the direction of the legal tussle and Facebook’s likely reaction of possible results from the lawsuits, Adefila paints short, middle and long term scenarios of the situation.
“In the short term, I believe Facebook will prolong the law suit as long as possible and maximise ROI (Return On Investment) in the interim across its two premium acquisitions, Instagram and WhatsApp.
“In the middle term, I see some algorithmical dependence being written in small print that the legal system could miss. This is me playing “Holmes” but rightly so, given what we know about tech companies and transparency in the past.
“There is also the option of moving headquarters of two of the contentious companies to India, China or UK. The right strategy can move their mountains.
“Long term, I see WhatsApp growing bigger than Facebook and so, if I were Mark, I would divest from Facebook and create an ecosystem of interdependence between the three companies that make up about 50 -75% of the industry (that being Facebook, WhatsApp and Instagram), but hang on tight to WhatsApp.”
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